How to choose the best investment property

There are literally millions of properties in Australia but not all are investment quality.

So with so much choice, there are many opportunities to buy good value investment properties – but how do you choose the areas and the properties to invest your head-earned cash into?

The first insight is that regardless of which investment strategy you choose, you have to give it enough time to achieve results.

There are a lot of people who lose a lot of momentum and a lot of money by jumping from strategy to strategy because they don’t give it enough time.

You see, everything about property is time-related, whether it’s market timing or time in the market, it’s still the same thing, so please make sure that you keep an eye on the horizon and not on the temporary factors that can crop up from time to time.

The next insight, if we look at this property cycle for example, is I wouldn’t invest in regional areas. I’d only invest in metropolitan locations.

My definition of metropolitan is within an hour’s travel distance off-peak from the main CBDs – although there are a few exceptions, which I’ll get to a bit later.

The next attribute is to consider buying close to satellite centres because the definition of CBDs has changed due to urbanisation and the advent of the information-age.

The previous definition was based around where the jobs were. In Sydney for example, in years gone by, the working class lived around the city because that’s where all the jobs, factories and the manufacturing were. The rich actually lived in the suburban areas on acreage.

Today that has totally flipped because the jobs are scattered and it’s no longer centralised within the 2000 postcode, using Sydney again as an example.

In fact, jobs growth is now around employment hubs like Parramatta, Liverpool, Campbelltown and Blacktown as well as in similar employment nodes in other major capital cities.

So, if you’re thinking about where to buy for future property demand and growth, you’d consider the affordable corridors within each of the capital cities where there’s going to be a jobs growth explosion and strong demand for property because of increasing populations.

It’s a fact that jobs are changing, which means that people can base themselves anywhere, or perhaps from a satellite centre rather than having to commute to the head office.

The information age is, in turn, changing the demographics of areas, which therefore should be part of an investor’s research when selecting the right location to invest.

As I mentioned before, there are a few exceptions to the travel distance requirements of where you should buy in our capital cities.

In Sydney, I’d still invest in areas that are about 1.5 hours travel distance from the CBD, which encompasses the Central and South Coast, because these locations are starting to develop their own economies and people are willing to commute into the city if they have too.

So, I would be consider breaking my “one hour rule” on an exception basis, but only in Sydney.

Conversely, in Adelaide, I’d restrict the travel distance to 20 minutes because of that city’s lower population. In Melbourne and Brisbane, I would stick to the one hour travel distance rule.

So once you’ve drilled down to selecting the best location, how do you choose the best investment property?

I always select something that has good bones – preferably I don’t buy brand new and certainly no off-the-plan properties in the current market because of oversupply issues and their higher sale prices.

But if I’m looking to buy an established three-bedroom house, I always look for comparable sales with new houses in the same area and then I try to buy something that’s at least $100,000 to $150,000 below what brand new homes on smaller blocks are selling for.

You must also ensure that you stick to the other investment fundamentals, such as looking for areas that have changing demographics and infrastructure as well as an increasing population and a cap on what they can build in the future.

I’m happy if there are still house and land packages and some new units going up in the area because that shows liquidity, which means you’re able to sell your property within 12 to 18 months (if you must) and walk away with all of your money, including deposit, stamp duty and fees.

Liquidity also involves being able to put your hand on your heart and say that even if one industry exited out of that area, you’d still be able to sell relatively easily without losing a financial arm or leg.

A recent example of a market with bad liquidity was Moranbah in Queensland, which was decimated by the downturn in the mining sector.

Liquidity is also why I try to keep my property purchases below the $400,000 mark because it substantially lowers your risk, especially with the potential for interest rates to rise in the future.

Property investment isn’t always easy but it doesn’t have to be hard as long as you choose your location and your property wisely.

So by sticking to a few “golden rules” and investment fundamentals you’ll be on the right track to a successful, and lucrative, long-term property investment journey.